Within the Nifty Pharma sectoral index, the stock of Cipla Ltd was the top gainer on Thursday, rising as much as 10%. The drug manufacturer’s June quarter (Q1FY24) results beat Street estimates. Performance across geographies was strong, boosting profit margins. Cipla’s Ebitda margin expanded by 233 basis points (bps) year-on-year and 310 bps sequentially to 23.6%. Favourable US market conditions, and improved traction for the company’s products such as chronic therapies have helped. Post Q1, analysts raised earnings estimates for the year.
The news flow regarding Cipla’s promoters looking to sell a part of the stake in the promoter shareholding to private equity investors could have also boosted the stock, point out analysts. Cipla has clarified on this saying that it is unaware of an event that requires disclosure.
That said, management has revised its Ebitda margin guidance upwards to 23% (from 22% earlier) for FY24. “Cipla has a differentiated product portfolio which acts as a key growth driver. Easing sectoral headwinds across geographies, cost efficiencies playing out and a sticky revenue base augurs well for its FY24 margin,” Kunal Randeria, director, Nuvama Institutional Equities, said.
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Cipla has a steady launch pipeline for the near term, particularly in the US market. Here, timely launches are crucial to sustain the momentum. It has also taken initiatives to mitigate the risks of product launch delays due to regulatory issues at the plants by filing the products from multiple facilities. For instance, US Food and Drug Administration (USFDA) inspected the company’s Goa and Indore facilities and found issues with the plant which had delayed launch of its two key products in US—gAdvair and gAbraxane. Cipla has initiated site transfer to its own facility for gAdvair while gAbraxane is derisked to contract manufacturing organization facility. The company expects to launch the products by FY25.
In Q1, Cipla’s revenue grew 18% year-on-year to ₹6,329 crore, driven by India and US markets owing to better market conditions and product mix.
To be sure, significant near-term upsides may be capped after the stock gained 23% in the past year. Update on the regulatory progress of the manufacturing plants in Goa and Indore is a key monitorable. “Any further FDA escalation to Indore unit and erosion in key products in US will be key risk to our call,” wrote Param Desai, Prabhudas Lilladher analyst, in a report. The brokerage has a ‘Buy’ rating on Cipla with a target price of ₹1,220 apiece. On Thursday, Cipla shares closed at ₹1,171.45.
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Updated: 28 Jul 2023, 01:21 AM IST